A prenuptial agreement or “prenup” is a legal contract between a couple made before they get married that defines how the assets divide should they get divorced. It establishes the assets and debts brought to the marriage and any intent to keep them separate. An attorney drafts the agreement, preferably one with experience in dealing with contracts and family law.
Here are some common reasons couples consider a prenup:
- One party is entering the marriage with significantly higher earnings, separate assets, or debt.
- A second marriage where children or future heirs exist.
- Income is derived from a family business and used to support the couple’s lifestyle.
- Later in life marriages where couples have established significant separate assets and a desire to spell out the handling of joint expenses, investments, and debts.
All states have laws that define marital property and separate property in the event of divorce. The state laws vary; most operate under equitable distribution rules (including SC and NC) and nine as community property states. Both provide that inherited property, separate property coming into the marriage, and gifts from a third party to one spouse during the marriage are separate property in the event of divorce.
In the absence of a prenup, it becomes imperative that “separate assets” be kept separate. It can become difficult to avoid commingling property and having it be considered marital property in the event of divorce. Examples include using separate assets to pay down the mortgage on the marital home or using inheritance to buy a vacation home in joint names. With or without a prenup, it will be essential to keep good records.
It is rare that both fiancés mutually agree that a prenup is necessary. It may be misinterpreted as a sign of distrust or a lack of devotion. For this reason, the fiancé initiating the prenup should give the other party ample time before the wedding, but before mailing invitations, to consider signing without feeling duress. Each party to the agreement should obtain separate counsel to ensure representation of their interests. Failing to do either could be a reason to contest the agreement in the event of divorce.
A prenup may have a purpose even if the marriage is lasting until the first spouse’s death. Most states have a spousal allowance and an elective share statute that outline a minimum amount of inheritance the surviving spouse is entitled to, usually based on the length of the marriage. The Will cannot override these laws. If it does, the surviving spouse can petition the court to claim the elective share. However, a prenup has the legal standing to waive the surviving spouse’s right to the elective share.
A similar agreement made after the wedding is a postnuptial, post-marital, or marital agreement. It could serve the same purpose.
This article is not meant to advocate prenuptial agreements, nor should it be considered as the rendering of legal or tax advice.